Oops, SpaceX to Lay Off 10% of its Employees after Funding Fiasco in November

What SpaceX is trying to do has “bankrupted other organizations,” it said.

SpaceX, the unicorn startup with a newly minted $30.5 billion “valuation” and dreams of sending humans to Mars shortly, will lay off about 10% of its employees, “a person familiar with the matter” told the Los Angeles Times on Friday.

The company says on its website that it has “6,000+” employees. TechCrunch reported that SpaceX “employed at least 7,000 people in late 2017 when COO Gwynne Shotwell last gave a number.” So somewhere between 600 and 700 employees will be out of a job. The Times reached out to SpaceX for comment, and this is how the company responded in perfect corporate-hype speak (bold added):

“To continue delivering for our customers and to succeed in developing interplanetary spacecraft and a global space-based Internet, SpaceX must become a leaner company. Either of these developments, even when attempted separately, have bankrupted other organizations. This means we must part ways with some talented and hardworking members of our team.”

And note the phrase, “…have bankrupted other organizations.” So how serious is this getting?

This reflects perhaps the money-raising fiasco SpaceX smacked into in November. SpaceX had tried to raise $750 million by issuing a leveraged loan. The leveraged loan market was red hot until October, and anything would go. But this era ended. By November, investors were getting jittery about leveraged loans. And in December, the leveraged loan market came unglued.

SpaceX will need many billions of dollars over the next few years not only to launch commercial and government satellites, but also to fulfill its dreams, including sending cargo to Mars by 2022 and humans by 2024, or whatever.

It marketed that $750 million leveraged loan only to a select group of investors, and they had no appetite for a risky loan of this magnitude. And here’s why, according to the Wall Street Journal at the time:

Some investors who were offered the loan expressed misgivings about the company’s record of burning through cash and its experience with high-profile accidents, which have previously led to dips in revenue. Other concerns include the company’s large investment plans and its connection to Mr. Musk, the founder and chief executive of SpaceX, whose volatile behavior has led to turmoil at the electric-car maker Tesla Inc., where he also is chief executive.

With that fiasco under the belt, and needing more cash to burn through, SpaceX tried in December to make up the difference by selling $500 million in equity, “to help get its internet-service business off the ground, according to people familiar with the fundraising,” the Wall Street Journal reported at the time.

SpaceX has not yet announced if it actually received the equity funding. In total, including the downsized leveraged loan and the December equity funding, if or when it goes through, SpaceX will have raised $2.7 billion.

To those of its employees who are now getting laid off, the company is offering a minimum of eight weeks’ severance pay along with other benefits and assistance, such as career coaching, according to an email sent Friday to employees by COO Shotwell, cited by the Times.

SpaceX launched 21 satellites in 2018 and 18 the year before. It has contracts with NASA to deliver cargo to the International Space Station and develop a capsule to send humans up there. The first unmanned test flight of the capsule is schedule for next month (NASA used to do that sort of thing itself in the 1960s).

The loan debacle SpaceX ran into in November is the beginning of a broader symptom: The rising difficulties for cash-burning companies to obtain new funds to burn through, after an era when just about anything went.

This is another piece of the puzzle of those “financial conditions” in the markets that the Fed has been discussing for a while. It was trying for three years via its monetary policy to tighten the ultra loosey-goosey financial conditions that resulted from years of QE and zero-interest-rate policy. And suddenly, starting in October the financial conditions in the markets tightened as investors became a tad more aware of risks.

When companies have trouble funding their cash-burn operations as financial conditions tighten, the next step is to be more prudent with their expenses and to try to reduce their cash burn so that they can hang on under these tighter financial conditions. And perhaps that’s what we’re seeing at work here.

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70 comments for “Oops, SpaceX to Lay Off 10% of its Employees after Funding Fiasco in November”

Sporkfed

Jan 11, 2019 at 9:47 pm

So SpaceX is having trouble refinancing debt in a rising interest rate
environment . I’d venture they won’t be the last. I wouldn’t want
to be an over leveraged company dependent on government contracts with the government shutdown.

I live next to Kennedy Space Center. Most of my neighbors work for NASA, SpaceX, or Blue Origen. They are all off work because nothing can be launched from NASA’s facilities. Of course Congress and the Prez passed a bill that will ensure everyone gets back pay, so it is essentially a free vacation on the taxpayer’s back.

Colorado Kid

Jan 12, 2019 at 10:36 am

It’s not much of a vacation when you can’t pay your bills. I know a lot of furloughed workers and none are having fun, believe me. Most are struggling. One very qualified forestry worker is trying to find babysitting gigs to make ends meet. Our local bank has offered them interest-free loans until this mess ends. I live in a very high cost area (think Aspen) and it’s hard to save much of an emergency fund on govt. wages.

Winston

Jan 12, 2019 at 5:45 pm

“Most are struggling.”

Then they should all call their “representatives” and strongly suggest they give Trump what he wants, an amount that’s about 0.01% of the fedgov’s budget.

eek

Jan 12, 2019 at 1:11 pm

Only the NASA folks / federal employees will get back pay, the SpaceX and Blue guys won’t.

I work for a NASA site that is not run by NASA (SoCal, take a guess). We still have funds but once we run out we’ll be furloughed too and we won’t get back pay because we are NASA contractors, even though we are one of NASA’s sites but we are considered employees of a college.

alex in san jose AKA digital Detroit

Jan 13, 2019 at 2:06 am

Sounds like JPL.

MCH

Jan 11, 2019 at 10:51 pm

The funny thing though is you’d have to appreciate what Musk has managed to do for the rocket industry even more than the car industry. I doubt if SpaceX is going to be allowed to go belly up, of course, the worst possible fate for that company is to be bought by somebody like Boeing, or Lockheed.

Howard Fritz

Jan 12, 2019 at 12:02 pm

You think so MCH? Doing so would involve assuming the liabilities of the firm, which are undoubtedly quite astronomical. Now it being sold off piecemeal is something else entirely, but I doubt they have any proprietary tech worth acquiring.

I don’t know Fritz, has anybody else landed rocket on a drone ship? Now, it’s an argument to make that this is done with existing tech, but it isn’t just about patents. Nobody did this until SpaceX did it. And rockets from ULA still cost more than SpaceX on a per launch basis.

Yes, there are liabilities, but the US govt would be crazy to let SpaceX fail. Considering They have accomplished so far, and what they’ve done to bring costs down.

Robert Goddard

Jan 12, 2019 at 8:33 pm

What’s the fastest way to get rich in aerospace? Start with a bigger fortune.

Space launch has, and will for a few more decades, be a money pit. Not saying SpaceX hasn’t done some cool stuff, but there’s a long list of companies that had similar or better ideas which were never funded to this level. They do get credit for forcing re-usability on the dinosaurs. That said, once pushed, those companies are coming up with better concepts than landing a booster on a barge.

Here are SpaceX’s problems in the long-term.

1) If their finance department is chaotic as engineering (according to my inside sources), their cost accounting is probably FUBAR. This will ultimately bite them on government contracts when the DoD or NASA “drops by” for an audit. We will probably find out the dummy in Elon’s launched roadster was bought with government money. Government disbarment would be like a death penalty (I doubt it would ever get that far, but government investigations would shake up investors.)

2) There is NO money in going to Mars. It’s a waste of time and effort from a business perspective. But, if you listen to Elon, everything SpaceX is doing to oriented towards going to Mars ultimately.

3) SpaceX’s labor costs aren’t realistic. They work their people like cult members. They are underpaid and spend longer hours on the job. Not to mention, they depend heavily on young talent. OJT… and you wonder why they blow up rockets during ground tests.

4) The first time they lose a DoD payload, it’ll be a while before they get anymore defense work. The DoD will crawl back to ULA with hat in hand. The DoD was satisfied with that monopoly. They were pressured into SpaceX by the Obama administration. So, allowing SpaceX to fail is OK with them. Their satellites are too important to let competition get in the way.

5) When Boeing gets their crewed vehicle flying… and by some miracle Sierra Nevada makes some progress, NASA will become less dependent on them as well. The space station is also approaching end of life, so that gravy train only has a few more years left.

6) The number of satellites predicted to be launched has always been overstated. This is somewhat of a chicken and egg thing because satellite operators need affordable rides to space…. which means competition or someone eating the cost… like a SpaceX.

7) They are wasting money on their Texas launch site and not making any progress. Granted, they need a private site… because flying on a government range sucks. They can’t look at foreign countries because of export restrictions on the tech.

They have racked up a pretty good success rate overall. But, I had a buddy in the govt (an agency providing oversight to space launch) who said he wouldn’t want to be on the same side of the country of their rocket launches.

Howard Fritz

Jan 12, 2019 at 8:41 pm

MCH

One of the most notable yet subtle costs of reuse is that the rocket manufacturer must now keep two separate supply lines open: one to service refurbishing of previously used rockets, and one to build new rockets and rocket components. Keeping both open is expensive, and running either one at reduced capacity (such as if few rockets are produced because many are reused) is a substantial expense. This leads to one of the most important rules in rocket reusability: it can only work at a consistent high flight rate (usually in the 30-40 launches per year range) because that is what is needed so that the fixed costs of running two supply lines does not dominate your expenses. Otherwise, more efficient production without reuse makes far more financial sense.

Also, This disclosure as part of a capital raise shows that even in SpaceX’s best year (after reusability was developed, with a very high launch cadence) its earnings are negative. This shows that even with all the promises of technologies reducing the cost of access to space, the reductions seem to largely be sustained by accepting unprofitable margins, and requiring constant capital raises (in both equity and debt financing) to stay afloat.

The old joke is told about a retailer who sold products below cost, losing a little money on each sale. “I make it up on volume,” the retailer said.

Well, that Musk.

MCH

Jan 12, 2019 at 10:03 pm

@Goddard

I agree that Musk is taking on way too much. Mars is a vanity project. Now while I hope he succeeds, but that ambition is likely going to be the reason that SpaceX fails (if that happens). The problem is too many project for limited resources, then we get what we get right now.

I don’t have a clue what the financials are like for SpaceX or ULA. But would ask if it’s so bad for SpaceX to fail the DoD, why is it not as bad for ULA fail at the same task? Noting also that ULA let SpaceX in the door because of the issue with using Russian rocket engines, now I believe ULA is supposed to be buying the engines from Blue Origin eventually. But until that happens, it will always be a source of concern. After all, if you are in the Pentagon, you’d have to be crazy not to be worried that the supply chain for your rockets runs through Moscow.

I think the space business is probably still way to dependent on the government, and I don’t think the idea of space tourism makes that much sense. Because how many billionaires can you shot into space. But eventually, that will turn, just like at some point, the internet turned from a government run project to something that found utility in the commercial world.

@ Fritz
I can see your point on reusability and the fact that this is a losing game being subsidized by the taxpayers. But then, there are two considerations which might go beyond this. First, what is access to space worth? Second, if SpaceX is losing money hand over fist, ultimately, how is that any different from ULA?

Now, it is entirely possible that Musk is undercutting the competition by dumping his rocket launches on the market. But then I am curious to see if someone has delved into the books of ULA and SpaceX and did a proper comparison to see where the cost is actually different, and who is the lower cost provider. After all, such a cost benefit analysis must have been done somewhere by either the DoD or NASA.

Finally, sure, SpaceX has failed spectacularly, if you look at their efforts to land a rocket on a barge, how many tries did it take before they succeeded? But this still begs the question, why hasn’t anyone else managed the same yet? (yes, I remember BO managed to land their rockets as well, but BO is not in the commercial launch business yet) After all, the people at ULA can’t possibly be that stupid. They would know that if doing this garners a lot of public press which might ultimately influence their sugar daddies at the Pentagon, why wouldn’t they do it? It’s a question between can’t or won’t.

The fact is that SpaceX has managed to shake up the launch market, whether people liked it or not. The only question is whether they’ll survive long enough to reap any benefits for their efforts.

robt

Jan 14, 2019 at 1:17 pm

If bought, Tesla would be the obvious choice to ‘buy’ it, (like SolarCity, another winner). And get the Boring Company too, a subsidiary of SpaceX.

ZeroBrain

Jan 11, 2019 at 11:06 pm

I don’t understand why financiers allow any company founded 16 years ago and with 6000 employees stay cash flow negative. R&D should be paid for out of profits from ongoing operations. This newfangled economy is confusing. Too bad we can’t look at their books, as they’re a private company.

intosh

Jan 12, 2019 at 4:00 am

The new business model is to burn cash, do business at a lost to destroy the established competitors and grab market share. In the era of free money, this business model can go on for a while.

wkevinw

Jan 12, 2019 at 10:32 am

There was a very good article on this new business model. It’s something like what you say. There is a “scaleup” part where you try to corner the market (read “monopolize by being first”) and take all the profits.

That is very difficult to do.

Ask AOL, Yahoo, Pets.com, Webvan…

I think it’s only possible under certain financial market conditions (not sure): low interest rates, low demand for money to increase output for existing products, etc. That’s where we have been for about 20-25 years. It won’t last forever.

RepubAnon

Jan 12, 2019 at 1:43 pm

It only works if there’s significant barriers to entry, and one can outspend one’s competitors. It can work against other start-ups, but trying to out-spend Boeing is a loser’s game.

Think Uber and Lyft: they had cab-calling software. Anyone with a car and the ability to write a freeware app could compete. Compare this with a car company – it costs lots and lots of money to set up an assembly line, a parts supply chain, aftermarket supply chain…

SocalJim

Jan 12, 2019 at 4:22 pm

That is not how a company is financed in a high growth trajectory. High growth firms need financing or the firm will fail to meets its potential.

ZeroBrain

Jan 12, 2019 at 10:48 pm

The problem I have with that strategy is that it puts you at the mercy of the capital markets, which are fickle, and probably reduces the emphasis placed on minimizing costs. I’m not super familiar with the stories of Microsoft, Amazon, and Google, but I think these were all high-growth companies for some time that grew organically, i.e. without repeatedly raising debt many years in.

Untermeyer was almost certainly correct about Henry Ford but that does not entitle you to draw a comparison with today’s occupant of The White House.

“Blinded by bigotry” applies both ways.

Joe

Jan 12, 2019 at 6:13 am

Blinded, indeed.

Harvey Cotton

Jan 12, 2019 at 5:23 am

They JUST had an article about how Space X just needed a bridge loan to get to the point where they would not even have to go public. The article said that Space X would generate a 33% operating profit (!) by 2020 with half of their revenue coming from commercial launches and half coming from satellite broadband internet service.

The article you linked is from NOVEMBER and covers the same leveraged loan I discussed, and it cited the same WSJ that I linked, but it said that SpaceX “settled” for $250 million, a fraction of the $750 million it had sought but didn’t get. What the article failed to point out is that investors who saw the financials walked away from the loan.

That article you linked sounds like a propaganda piece to counteract the negative publicity from the funding fiasco.

Dale

Jan 12, 2019 at 1:48 pm

The article says that Spacex plans to reduce launch costs by 30% It needs a reduction closer to 90% to launch and maintain a profitable constellation of thousands of LEO satellites. Or to extend the life of such satellites.

The next few months will see SpaceX making the first crewed launches, and then the Moon. SpaceX is ruling the global space race at the start of the second decade of the 21st century.

Old Engineer

Jan 12, 2019 at 9:08 am

SpaceX has accomplished some very impressive technical feats and clearly changed the whole business of space launch. They have arguably made the biggest practical change in launch/recovery technology since the first satellite was launched.
But the obsession with going to Mars could sink the company. That is a black hole that could suck billions with very little chance of any return on the investment. Where is the financial reward for sending people to Mars? And where is the scientific reward when the robots are doing such a good job. 50 years after the first person steps on Mars the situation will be just like it is 50 years after the first person set foot on the moon: it will be a bragging point and little more.
An investment in propulsion technologies to significantly reduce the travel time to Mars might have commercial utility. But I would sure hate to see all the accomplishments SpaceX has made go down the black hole of sending men to Mars.

wkevinw

Jan 12, 2019 at 10:27 am

Right. The automation/use of robots has been much more successful at gathering data than the astronaut/human programs.

However, the astronauts are good at some other things in space, and they are better at PR.

Having both is good.

Trying to make a profit on sending astronauts to far off destinations in space? Not very likely.

Ethan in NoVA

Jan 12, 2019 at 3:34 pm

When they haul back a huge space nugget of gold or lithium and park it nearby, that will generate profit.

MCH

Jan 12, 2019 at 3:32 pm

That is a sentiment I wholeheartedly agree with. The problem with SpaceX is Musk, but sadly, he is also the solution. No one else has managed to do what he has done. I suppose you could argue that Bezos has come closest. But Bezos didn’t go up against ULA, and the Byzantine govt procurement process.

If SpaceX stuck just with near Earth stuff, my guess is that they would be must closer to profitable. But Musk is doing three things at once, the normal launch biz, Internet in space, and Mars. Even two of these might be too much. Firing 10% ain’t going to help

Old Engineer

Jan 12, 2019 at 4:39 pm

I must admit, I admire Mr. Musk greatly. But as you say, he is frequently his own worst enemy. And I agree with you, the Mars idea is nothing but a money sucking diversion. I am not bright enough to know about the internet constellation. Right now land based internet is very expensive and the Iridium system has never really prospered, so I don’t know how he will make a money making proposition out of that. But he has made a revolutionary reduction in the cost of earth made space launches that threatens every other space business in the world. I do wish him luck, he is arguably the most innovative technical thinker in the U.S. today.

intosh

Jan 13, 2019 at 3:29 am

Mars is most likely just a marketing ploy that is quite typical of Elon.

Iamafan

Jan 12, 2019 at 6:58 am

Just another example of how crazy people got with the QE hallucinogen. Time to get rid of it.

Maximus Minimus

Jan 12, 2019 at 8:37 am

Investopedia: “Leveraged loans allow companies or individuals that already have high debt and/or a bad credit history to borrow cash, though at higher interest rates than usual”.

But it can’t be tightening financial conditions that’s causing problems to SpaceX. Maybe some of the investors thought, the idea of delivering live people to Mars (and back?), and getting high quality volunteers must be quite nutty (or high?).

CoCosAB

Jan 12, 2019 at 11:26 am

Well… Like almost ALL private companies the terminal solution is TAX PAYERS MONEY via federal government programs/subsidies. Watch out NASA.

Howard Fritz

Jan 12, 2019 at 12:04 pm

I don’t know about you folks but I welcome the coming market correction.

Paulo

Jan 12, 2019 at 12:42 pm

Howard….

I do and I don’t. There are always those cascading consequences and undeserved casualties that effect folks who just played straight with their deductions and retirement contributions. The folks that deserve to lose their shirts will have already gamed events to make more money on the downside.

I am thankful my kids have kept their debts down. My son has even started to make remarks that sound familiar, as they should since I have tried to instill caution in his brain for the last 5 years. I actually heard this winter, “You were right Dad, when the infrastructure is in the gravy starts to disappear”…(oil sands). Imagine. Now if he would just pick up the lunch cheque a little more often and leave my gas tank full when he borrows my truck I would be in heaven. :-)

Cmoore

Jan 12, 2019 at 3:13 pm

The market has already made some serious corrections. Many good quality stocks are down 50%. There are some good buys out there just looking at pe’s and yield. But the stocks may have taken on enormous amount of debt. Speaking of debt I wonder when the federal govt debt is going to take over the world. We are running trillion dollar deficits and the economy is doing well. Taking in more tax money than we’ve ever taken in. Can you imagine what the deficits will be when we do have a recession. Tax receipts will be down and spending will be up. And what if interest rates really go up. Not going to be pretty.

kevin

Jan 12, 2019 at 12:37 pm

IMO, all this space efforts via commercial entities are just a facade.
Deep space exploration is not only extremely technically challenging on many levels, but emotionally and psychologically taxing for those risking their lives, as well as the people/families/nation supporting their efforts on the ground.

The fanfare, excitement and cheering lasts only less than 20 minutes after launch. Thereafter, once you are millions of miles away from the safe oasis that is Earth; the harsh cold reality of near-certain death will be apparent. And when things do go wrong in deep space, it will go wrong very quickly.

Such an endeavor is a very LONG-TERM one and only a National (or International) mission can ever hope to achieve such a feat.
Do you really think a commercial outfit such as SpaceX has the wherewithal and the will to colonize Mars if they need to be answering to profit-oriented shareholders and worrying about their financials every quarterly? lol.

And you trust a weed-smoking CEO who tweets inane comments every now and then, to lead humanity into the final frontier?
I don’t know if people (mostly millennials ;-) are either naive or ludicrously hopeful whenever they cheer Elon and perhaps egg him on with dangerous & false hopes.

Even NASA (with government largesse & heaps of backing by the military-industrial-political infrastructure) has essentially backed off all manned missions beyond the Moon for the past 45 years and counting!

So, if NASA (for whatever known & unknown reasons) is not going back even to the Moon, you must be smoking weed too if you think Elon will be the one to successfully colonize Mars.

fajensen

Jan 13, 2019 at 5:16 pm

Such an endeavor is a very LONG-TERM one and only a National (or International) mission can ever hope to achieve such a feat.

Correct. But. The current dominant narrative is that anything to do with Government is Dumb & Wasteful whereas Private Enterprise is Always Magic and Golden.

In order to get still this very long term exploratory work done before China does it, Government work within the narrative and funds private enterprises to do what NASA once did (of course the whiners are down on that too because Elon Musk).

If Uncle Sam wants a man on Mars to show China who’s free-enterprise value system is the Boss, then Elon will be successful in putting him/her there.

So if you are on the Space Station and you get hungry do you call Amazon delivery?

Unamused

Jan 12, 2019 at 5:55 pm

That works. Just bring it up with the transporter. Also, the replicator could make you something. But you could simply wind the clock back a bit and make sure some comfort food gets stowed before you go into orbit.

I’m not seeing what your problem is.

alex in san jose AKA digital Detroit

Jan 13, 2019 at 2:13 am

My boss the rocket scientist has more than average fascination with Star Trek tech and he said he’d calculated that the amount of energy for a replicator to make a cup of coffee would be about the equivalent of a small atom bomb.

SocalJim

Jan 12, 2019 at 4:23 pm

The difference with SpaceX and other young firms is the country needs SpaceX products for national security reasons while many of those useless SV startups are producing nothing of value.

Bobber

Jan 12, 2019 at 5:22 pm

Treating other countries with respect is better security than an arms race, and a heck of a lot cheaper.

Unamused

Jan 12, 2019 at 6:07 pm

Where’s the profit in that? The whole point of running a business in global military empire is to get obscenely rich on government subsidies and by squeezing other countries for resources and cheap labor.

You seriously need to get up to speed on modern business practices or you’re going be stuck holding the bag with seven billion starving strangers when the SHTF.

MCH

Jan 12, 2019 at 7:52 pm

Yes, that’s a good idea, treat Russia with respect, and see what you get.

Unamused

Jan 12, 2019 at 11:42 pm

A couple of dozen indictments and grand jury going into overtime.

fajensen

Jan 13, 2019 at 5:25 pm

A Trade Deal, maybe?

Pavel

Jan 12, 2019 at 6:52 pm

Long(ish) and ostensibly expert analysis of SpaceX business plan and technology on this Reddit post. Spoiler alert: it’s a typical Musk con game.

BTW, if you had posted a link, it would have been deleted as totally unrelated to the article. This site is not a link dump. If you want to dump links, do it on Twitter.

Bobber

Jan 13, 2019 at 10:29 am

Space-X will be the Fannie Mae of space exploration, a psuedo government entity that needs large government bailouts from time to time.

J.M.Keynes

Jan 13, 2019 at 8:01 pm

– Never paid much attention to this Enterprise. I found it all a giant hoax. I am surprised that they were able to raise money in the first place.
– “Sending humans to Mars” ?? Were they serious ?

Mean Chicken

Jan 14, 2019 at 2:11 am

Because mankind needs a colony on Mars. Else… perish.

Martin

Jan 14, 2019 at 9:10 am

With Apple’s declining market cap, and profit warnings in the tech sector now the norm, reality might at last be sinking-in. Even with close to 0% money, and in this case, a rigged market, these companies still can’t make anywhere near the profits they need to, to justify their insane ‘valuations’, and thus massive bonuses for the senior management. As Peter Theil has observed, contemporary competitive markets = zero profit, meaning the bucks are in only possible in monopolies – Facebook, Twitter, Amazon, etc. The US government has understood this for a decade, that’s why there’s been no anti-trust actions, and there won’t be any in the future. Modern hyper-capitalism simply can’t generate profit without monopoly. And no profits, no power.

As for SX itself, like all Musk’s projects, you’re asked, no required as a matter of faith, to leave your critical faculties at the door. Borrowing short to finance multi-decade R&D is about as practical as sailing the Pacific in a paper boat, but for some reason there are still enough fund managers out there – spending your retirement money, to keep this show on the road, for now.